2/9/2023 Public Expenditure Lecture 3 Dr. J. Onyango Learning Objectives a By the end of the lecture, the students should be able to; 1. Understand the meaning of public expenditure 2 Objectives of public expenditure 3 Describe theories and classifications of expenditure «Describe different models of state and identify the causes and determinants of increase in Government expenditure 5 Understand the principles of public expenditure management Dr. J. Onyango2/9/2023 Meaning of Public Expenditure a Public expenditure refers to spending made by the government of a country on collective needs and wants of the people for improved social welfare. a Examples; health care, education, security, infrastructure, civil administration etc. a Ingeneral, public expenditure tends to promote the achievement of four outcomes; \ Aggregate fiscal discipline 2 Allocative efficiency 3 Distributive efficiency 4 Operational efficiency Dr. J. Onyango Classification of Public Expenditure a Classification of public expenditure refers to the systematic arrangement of different items on which the government incurs expenditure. We examine the following; 1. Current/Recurrent Expenditure 2. Capital Expenditure 3. Transfer Payments 4. Non+transfer Payments 5. Classification according to benefits: Dr. J. Onyango2/9/2023 Theories Public Expenditures 4 We examine the following two major theories: ‘Law of Increasing State Activity, (Adolph Wagner, 1890) 2 Peacock and Wiseman Hypothesis, (1961) Dr. J. Onyango 1. Law of Increasing State Activity, (Adolph Wagner, 1890) 2 According to this theory; a There are inherent tendencies for the activities and functions of Government to grow, both intensively and extensively over time as the economy grows. a The governments undertake new functions in the interest of the society and the new and the old functions are performed more efficiently and competently than before. 4 Thus there exists a functional relationship between the growth of an economy and that of Government activities. 4 Government sector growth precedes growth of the economy. Dr. J. Onyango2/9/2023 2, Peacock and Wiseman Hypothesis, (1961) 4 Social or other economic disturbances like wars, revolutions or depression occur which reveal and explain the need for increase in public expenditure. 4 This increase in public expenditure do not occur in a straight, smooth and continuous manner, but in "Jump or Stepwise" fashion. Dr. J. Onyango Determinants of Public Expenditure a Public expenditure is generally determined by: i Chosen state model i.e. minimal or welfare/developmental state i Population size i GDP size v. Technological change Inequality level vi Political will and priorities of those at the helm of government affairs Dr. J. Onyango2/9/2023 Causes of Increase in Government Expenditure a A number of factors have been identified as causing increase in public expenditure in various countries over time. Some of these are general, having relevance to all countries, while others are specific to certain countries. These factors include the following: 1 Expansion of administrative machinery 2 Increase in public awareness and social welfare activism 5. Inflation 4 Population growth 5 Urbanization Ox. J. Onyango Dr. J. Onyango Principles of Public Expenditure Management a Due to the scarcity of resources in the wake of unlimited demands, the need for economical utilization of public resources becomes imperative. a For this reason, certain guidelines, in the form of basic truths or principles, have been developed to assist in the effective and efficient management of public expenditure. 1. Maximum Social Benefit: 5. Economy 2, Prudence 6. Elasticity 3, Transparency 7. No Adverse Influence on Production or Distributior 4, Sanction2/9/2023 Public Expenditure Management and Control 4 The management and control of public expenditure is a responsibility that falls on government institutions and individual public servants. a As an institutional duty, both the executive and parliamentary arms of government have constitutional roles aimed at ensuring the proper disbursement of public funds. a Individually, all civil servants who handle government funds and properties are required to observe certain rules and guidelines in ensuring appropriate custody and spending of public monies. Dr. J. Onyango Reading Assignment a Read and make notes on roles and functions of different government agencies and institutions in the Management and Control of Public Expenditure in Kenya Dr. J. Onyango2/9/2023 Public Expenditure END Dr. J. Onyango